BT must cut its wholesale broadband price, says Ofcom

21 July 2011 | Kavit Majithia


Ofcom, the UK telecoms regulator, has declared BT must cut the price of its flagship wholesale product to incentivise competition in the market and promote increased internet access in rural areas.

Over three million homes and businesses across the UK could be subject to significant decreases in broadband prices by the end of this year, in a further bid to encourage competing ISPs to challenge BT wholesale’s dominant position in the market. Ofcom says the move should enable “ISPs to buy more capacity for their customers without increasing costs and incentivise efficient investment by ISPs to roll out their own networks in these areas”.

The regulator has told the former incumbent it must reduce the price of access it can charge ISPs, primarily in rural and sparsely populated areas, including parts of Scotland, Wales, Northern Island and south west England.

The charge controls are expected to come in to effect by the end of August and it is expected BT must reduce the price of its wholesale product by 11% below the rate of inflation for the next three years. Ofcom anticipates the move will also enable ISPs to allocate more bandwidth per customer to deliver faster access.

Despite challenging BT’s dominant position in the wholesale broadband market, Ofcom believes this could also promote BT to upgrade its own services, and the Financial Times has reported today BT’s shares rose by almost 1% after the pricing cap was announced.

Ovum lead analyst Matthew Howett believes the deal could be passed on to the consumer in the form of lower retail prices and it is particularly good for consumers in rural areas of the UK. “These are parts of the country where only BT is present, largely because of the comparatively higher cost of providing service to these customers,” he said. “As a result, Ofcom has intervened to stimulate competition by reducing the amount of internet service providers have to pay BT.”